Ahead of Governor Carney's visit to Nottingham, I comment on SMEs, employment and Bank of England policy.

1. 4 I Tuesday, August 27,20lg
BOE Thkes Rate Pledg" on Road
Carney to Deliuer First Speech Amid Skepticism Ouer Promise l{ot to Raise Rates Until2016
BY JAsoN DoucLAs
NOTTINGHAM, England-The
Bank of England's new governor,
Mark Carney, is taking his message
that interest rates will remain near
rock bottom over the next three
years directly to businesspeople in
the heart of Britain.
Mr. Carney heads to the former
industrial city of Nottingham in
Epglands east Midlands on Wednesday for his first public speech since
taking the helm of the central bank
on July 1. The appearance before the
city's chamber of commerce comes
three weeks after his pledge to keep
interest rates to a record low until
U.K. unemployrnent falls
to
7%.
His strategy, called "forward
underpiruing
the country's fledgling recovery by
reassuring consumers and businesses that borrowing costs won't
guidance,'.' is aimed at
shoot up until the economy is on a
much firmer footing. That, he hopeq
will encourage them to borrow more
and spend now.
Despite signs of a.nascent recovery, business investment in the U.K.
remains in the doldrums-it was
3.5% lower in the second quarter
.9
MarkCarney, who took over the Bank of England on July 1, is to deliver his
than a year earlier.
Even in Nottingham, where the
recovery is patchy, people are skeptical that Mr. Carney, tfie first.Canadian to run the 3l9-year-old institu-
tion, can stick to his low-rate
pledge, which came with several
get-out clauses in any case.
"I don't think forward guidance
is a magic pill," said Simon Gray,
founding director of Cherry Professional Ltd., a recruitment firm that
finds staff for finance and humanresources positions in Nottingham
and neighboring towns.
Pqople here once worked in bustling factories making textiles, cigarettes and bicycles. Now they are
more likely to work at the sprawling
university campuses and hospitals.
The warehouses in the city's Lace
Market district, a hub for the textile
industry during Britain's industrial
hey.day, .today house fashionable
aparhnents and trendy bars. Nearby,
tech startups and pharmaceutical
firms inhabit a futuristic science
park.
At Six Serving Men Ltd., a digital-marketing consultancy in Not-
tingham, managing director Stefan
Elliott said for his business and
many of his clients, the worry about
servicing debt isn't higher interest
rates but whether the company is
making enough money. He said he's
fielding more inquiries from prospective clients but firm orders have
yet to follow
John Carlill, managing director
of Steetley Dolomite Ltd., a Nottingof materials
used in steelmaking, said his company has recovered from the recession that followed the global financial crisis in 20O8. Exports began to
pick up nine months ago and U.K.
demand followed suit in the spring.
ham-based supplier
Steetley Dolomite recently se-
cured a loan of f,S million ($7.8 milIion) from HSBC Holdings PLC to
help fund a f,7 million investment in
new production lines to boost out-
put and keep costs down.
Although he says his borrowing
costs have never been cheaper, he
doubts the central bank witl be able
to keep it so affordable until 2016,
because of the strength of the re-
first public speech Wednesday in Nottingham.
covery. The rate pledge is "a good
headline," he said.
Others worry about the unbalanced nature of the recovery. In
Nottingham, the unemplo5rment rate
was 13.6% in March compared with
for the U.K. as a whole, underscoring a long-festering.divide between the prosperous south and a
poorer north, where the scars ofindustrial decline run deep.
"The farther you get from the
heat of the capital, the more you realize some parts of t}te country have
been in a fairly stagnant phase for a
Iong period indee4" said Chris LesIie, one of Nottingham's three members of Parliament and a financ6
spokesman in the opposition Labour
7.8o/o
Party.
The BOE believes it will take until early 2016 for unemployment to
reach its 7o/o taiget.
But it has said it would be prepared to raise rates'%efore then if
inflation looks poised to accelerate
past 2.5o/o within two yearq if expectations of future inflation rise too
far or if the stabiliW of the financial
system is threatened.
Economists
at
Royal Bank of
Scofland said Friday they expect the
target jobless rate to be hit a full
year before the BOE's forecast of
early 2016.
Mr. Gray, from the recruitment
firm, said he doubts all the conditions can be met to keep the benchmark rate at O.5% until 2016, as the
BOE pfedicts, echoing doubts in the
financial markets. Investors are betting the central bank will.raise its
policy rate in mid-2015.
The economy expanded at an annualized rate of 2.9% in the second
quarter, a pace matched among the
worlds major developed economies
only by Germany. The U.S. grew l.7o/o
in the same period" A raft of economic
data and positive business surveys
suggest the U.K. will keep expanding
in the second half of t}te year.
'Torward guidance is aII well and
good, but forward guidance with
certain caveats...is quite tricky," Mr.
Gray said. 'You are either committing to doing something or you are
not."